I made a rookie mistake when I first started investing that could have cost me tens of thousands of dollars
Summary List Placement When I first started saving for retirement, I had no idea how to invest. I tried to invest my money in index funds through Vanguard, but I didn't know how to use the interface and my money sat in a settlement account — not invested — for months. When I realized what I'd done, I got some help from a friend who showed me how to invest in specific index funds. The mistake could have costs me thousands. Use Blooom to analyze your 401(k) today and see how you can grow your retirement savings »
I started to invest for retirement after paying off $81,000 in student loans. Before that, I had only worked for nonprofits that didn't offer a match, so I didn't think it was worth it to save for retirement. Then, at age 31, I was starting at net worth zero and had no idea where to begin when it came to self-employed retirement options. I found out about the SEP IRA and started to stash money there. I had also heard the buzz about index funds from the likes of Warren Buffett, so I thought I'd get on that too. But I made a big retirement mistake that could have cost me a ton of money in the long run. I didn't know how to invest I remember creating an account with Vanguard to invest in index funds. I connected my bank account and transferred over a few thousand dollars (Vanguard has a minimum) to start, and I thought I was set. I believed that I was done and didn't think about it for several months. The next time I logged in I realized my balance hadn't budged at all. I was an investing newbie, but this seemed odd. As I looked closer, I realized my money was just sitting in the settlement fund and not actually invested. I didn't know how a settlement account worked at the time. My settlement account was basically the holding account for my money before actually investing in anything. After I realized my grave mistake, I was happy to understand why my balance hadn't budged, but I was also equally mortified and frustrated. I was never taught how to invest in school, by my parents, or anyone. I also felt like Vanguard's interface wasn't super user-friendly. I didn't know how to get started with investing with my funds from the settlement account.
Learning to navigate Vanguard I turned to a trusted friend in the personal finance space and confided that I didn't know the mechanics of how to invest my money in index funds through Vanguard. He was able to walk me through the interface and help me understand ticker codes and other terms. At first, I felt clueless about how to decide which index funds to invest in, but he helped me feel more confident. Having his help was great because it got me on the right path, but I realize not everyone has someone in their life who can help them with something like this. Finally investing my money Once I was able to buy the index funds that were best for my goals and risk tolerance, I felt much better. I was finally able to have my money invested and working for me, rather than just sitting in the settlement account for months. Imagine if I left that money there the whole time, thinking it was invested. That would be a costly nightmare, but one that has come true for some people. According to an article by Erin Lowry in USA Today, "While researching my second book, 'Broke Millennial Takes On Investing,' one interviewee shared a horror story about a client who called into the brokerage firm where she worked and inquired about the balance of his retirement account. It turns out that when this client signed up for a 401(k), he didn't select actual investments, and for decades he had just been — quite literally — saving into his 401(k). Sure, there was a decent chunk of change, but not enough to comfortably retire and nowhere near what could've been there had the money been properly invested and reaping the rewards of compound interest." This type of mistake could cost you hundreds of thousands of dollars in the long run. Moving forward, I logged in once a month to review my finances and was able to see the positive gains I was making. It was exciting to see how it actually worked and be able to visually see through the graph the peaks and valleys of my investments. A reminder: No one else will take care of your money for you It's important to be proactive with your retirement account so you can build a healthy nest egg that can take care of you in the future. No one cares about your money as much as you do, and in order to build wealth, you need to be an active participant and learn the ins and outs of what you're getting into, especially with investing. Making investing mistakes can be costly and embarrassing, but asking questions and getting help can remedy the situation. Related Content Module: More Retirement CoverageJoin the conversation about this story »
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